Retirement savings can seem like a pot of gold at the end of your working life. But just because you've reached your golden years doesn't mean you should stop investing. Here are four reasons to keep money in the market long after saying "goodbye" to the daily grind.
1. Lifespan
The average lifespan has increased by about 10 years since 1997. How will you account for the additional time (and expenses) in retirement?
Unless you plan to flip burgers into your 70s, it's wise to up your investing game. One way to do this is to divide your investments into "buckets" intended for different uses and time periods. The first bucket should hold a few years' worth of cash for immediate expenses, while the second and third buckets should hold investments that can be cashed out in five to 20 years. This strategy gives you the cash you need in the near-term without depriving you of the market's long-term trend higher.
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2. Inflation
The historical rate of inflation is 3.22% per year. This may not seem like much, but it can seriously limit your purchasing power over time. You can help to combat the impact of inflation on your standard of living by investing in Treasury Inflation-Protected Securities, or TIPS. These low-risk Treasury bonds guarantee a return that rises (or falls) with inflation.
3. Healthcare costs
The cost of healthcare in retirement rose 6% between 2015 and 2016, according to Fidelity, and prices are still increasing. To help offset this, investors should seek out passive income that grows with time.
Investment property is a perfect example. It allows your income in retirement to keep up with rising healthcare costs because you can increase the rent every year. College towns usually boast low property values with higher rental prices to accommodate the seasonal population. Consider moving a portion of your savings into real estate to take advantage of this.
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4. New opportunities
A retiree who invested $5,000 in Amazon in 1997 would have over $1 million today. Products, technologies, and services that once seemed mythical are staples in today's market, and the sum of a longer lifespan, inflation, rising costs, and new opportunities calls for aggressive investing, even in retirement.
Traditional wisdom says you should limit your exposure to high-growth stocks in retirement, which is sound advice. But that doesn't mean you should avoid them entirely. For instance, you might use one of your "buckets" to hold long-term stocks like Amazon, which not only offer growth potential, but can also increase prices in lockstep with inflation.
At the end of the day, what's most important is that you have enough money to see you through your golden years. Keeping these four things in mind, and structuring your retirement savings accordingly, will go a long way in that regard.
